Which Post-Pandemic Government?

Although the COVID-19 pandemic has shown why high-level coordination is sometimes necessary for managing emergencies, it has also underscored the risks of placing too much power in the hands of an incompetent central authority. The best approach is a middle path, with a slight bias in favor of decentralization.

CHICAGO – Even with the COVID-19 pandemic still raging, speculation has turned to what society will look like afterward. Citizens, shocked by how easily their lives can be upended, will want to reduce risk. According to the emerging new consensus, they will favor more government intervention to stimulate demand (by pumping trillions of dollars into the economy), protect workers, expand health care, and, of course, tackle climate change.

But every country has many layers of government, so which one should expand? Clearly, in the United States, only the federal government has the resources and mandate for nationwide decisions on issues such as health care and climate change. Yet it doesn’t necessarily follow that this level of government should grow larger still. After all, it could adopt policies that protect some constituencies while increasing the risks faced by others.

In the case of COVID-19, some countries have centralized decision-making about when to impose and lift lockdown measures, whereas others have left these choices to state governments, or even municipalities. (Others, like India, are in transition between these approaches.) What has become clear is that not all localities face the same trade-offs.

In crowded New York City, a strict lockdown may have been the only way to get people off the streets, and its economic impact may have been softened by the fact that many there work in skilled services like finance, which can be done remotely. Moreover, even laid-off waiters and hotel workers know they won’t get their jobs back until the public feels safe going out again. Health concerns seem to be paramount.

In contrast, in Farmington, New Mexico, the New York Times reports that, “few people know anyone who was ill from the coronavirus, but almost everyone knows someone unemployed by it.” The lockdown, imposed by the state’s Democratic governor, seems to be unpopular across a community that was already in serious economic decline before the pandemic. In this case, economic concerns have trumped more modest health worries.

These differences show the drawbacks of a centralized, one-size-fits-all approach. But decentralization can also be problematic. If regions have contained the virus to different degrees, is travel between them still possible? It stands to reason that safer regions would want to bar visitors from potential hot zones – or at least subject them to lengthy quarantines. A fast, cheap, reliable testing system might solve the problem, but that is currently unavailable.

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Some degree of harmonization between regions can therefore be beneficial, not least in the procurement of medical supplies. In the absence of federal coordination, US states have been in a bidding war with one another over scarce medical supplies from China. In normal times, competitive markets would allocate such goods most efficiently. But in a health emergency, markets may perform poorly, allocating goods according to buyers’ ability to pay rather than their need; rich states would buy up all the ventilators and testing kits, leaving poorer states with none. The country’s ability to contain the pandemic would suffer.

In this situation, centralized procurement could keep prices lower, potentially enabling more need-based allocation. But “could” and “potentially” are the operative words. If a central government has questionable motives or simply is incompetent, the calculus changes. As we have seen in Brazil, Mexico, Tanzania, and the US, when heads of government minimize the dangers of the pandemic, they can do considerable harm to their country’s response.

Among other failures, Brazil’s federal government seems to have had difficulty distributing ventilators it bought. In the United States, Republican-governed states have allegedly had easier access to central medical supplies than states where Democrats are in control. And in India, the central government imposed a stringent lockdown without making the necessary arrangements for millions of migrant workers, who were forced to flee the cities for their home villages. Families with children walked hundreds of miles, helped only by the kindness of strangers and local authorities, and potentially carrying the virus with them. A decentralized decision-making process might have allowed states that locked down later (because they initially had fewer cases) to learn better management from those that went first.

Given that extremes of centralization and decentralization can both be problematic, a coordinated middle ground may work best. The federal government might establish minimal standards for closing down and opening up, while leaving the actual decision to states and municipalities. That said, if there is to be a bias, it should be toward decentralization, following the principle of subsidiarity, whereby powers are delegated to the lowest-possible administrative level that will be effective.

There are important reasons to favor a carefully managed decentralization. Not only do members of smaller political entities tend to face similar problems; they also typically demonstrate greater social and political solidarity, which makes it easier for them to engage with one another and find solutions.

While local politics might occasionally resemble the Hatfield-McCoy feud of nineteenth-century Kentucky and West Virginia, it generally suffers less gridlock and antagonism than what one finds in central legislatures today. And people feel a greater sense of ownership over decisions taken by their locally elected or appointed bodies. This empowerment can help them devise policies to benefit from national and global markets, rather than being at their mercy.

This is why, as we prepare policies to aid the recovery and strengthen post-pandemic health, education, and regulatory systems, we should also think about who will make the decisions and where. For example, a fair share of stimulus spending on infrastructure should take the form of block grants to communities, which are in the best position to allocate funds according to need. And while national climate policies cannot be determined separately in every community, they can at least reflect a bottom-up consensus.

Rising authoritarianism around the world reflects widespread yearning for charismatic political leaders with whom ordinary people can identify with. Such demagogues have used their popular support to avoid constitutional checks and balances, taking their countries down ruinous paths. Expanding government further while limiting the risk of authoritarianism requires independently powerful bodies that also enjoy popular support. Constitutionally decentralizing more powers to regional and local government may be the way forward.

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Decentralizing powers might be an option in already centralized countries with centralized power (for instance, in Latin America, Chile or Uruguay). But even in those cases, decentralization must be planned. The Chilean case on handling Covid-19 shows that a sudden decentralization might start a chaotic situation on applying public policies, just because local governments aren’t capable of handle them.

Raghu says it well, though his reference to Farmington NM is unfortunate, as it ignores the fact that while whites who live there may not know COVID, native Americans who are concentrated there do! Some central protection of (local) minorities would seem to be required.

Raghuram has hit the nail as always, decentralisation in this crisis works far better than centralisation for the simple reason that solutions that work in a district may not work in another and making a single policy rule for a large state will bring very different results in the different districts it is made up of.

In most cases the information itself is distorted when it reaches the CENTER and left to local and smaller people groups in the districts, the better is the quality of information and its sharing. To target a smaller circle with different sets of problems how can a body of people completely detached from them make decisions right.

But for India the problem is far more difficult. Think of Railways that is managed from the Center whereas it moves through different states who may not all converge to make a combined solution work; a state not having Covid 19 cases may not like to accept people from one where there are too many. Whereas the state where the migrant labor work does not want to own their problems of livelihood either.

Actually, better responses to the coronavirus, as measured by death rates, are probably more correlated with traditional family values than with authoritarian governments, for the simple reason that the most vulnerable, the elderly and the infirm, are more likely to be cared for at home and, consequently to be diagnosed earlier and treated more carefully, in counties with traditional family values than they are in Western nations, where the elderly are more often warehoused in long-term care facilities. Since authoritarian governments also correlate with traditional family values, you get a cross correlation between covid virus outcomes and type of government that may not be as strong as initial statistics suggest.

Of course, traditional family values are anathema to the women's liberation movement, so some may be more comfortable with the possibly spurious correlation that Rogoff has fastened upon.

Theoritically, "Constitutionally decentralizing more powers to regional and local government" is correct on constitution text but what about the real practical position where the mindset is still centralized and the policies comes on the same centralized mindset. It is now clear that "One size fits all " is not an effective approach but its still hard to find policies which are customized for heterogeneous masses even by the agencies like UN,World Bank.

WHEN WISDOM DEPARTS FROM THE BLUE TO THE RED STATESThe remedy recommended is remarkably similar to what The British Empire did.So long The Empire could be milked, Big Central Government was great.When The Empire demanded removal of Inequalities bequeathed, decentralize.And so the Economic Geography that was marginalized, is decentralised.An those parts that were Economic Winners, Isolated into quarantine.Europe's decentralization perhaps relevant - as The North leaves The South.Germany and Scandinavia walking towards Splendid Isolation.The Blue States walking away from The Red States - in America.Without adequate accountability - and reparations.The real solution is to enable those Left Behind Communities to milk back.By hijacking the Economic Architecture to neutralise the Incumbent Finances.The Economic Wisdom that bequeathed the Inequalities needs neutralizing.Leaving the Left Behind Communities into decentralization, is recipe for chaos.Incompetence of Central Authorities - is when Economic Wisdom can no longer perpetrate the Economic Inequalities that was bequeathed.Incompntence of Central Authorities - is not when decentralization is needed.Incompntence of Central Authorities - is when the Economic Geography requires reversals, neutralization of bequeathed legacy of Economic Wisdom.So that The Red States become Economic Winners - Wisdom no longer Blue.Status quo of Wisdom and Economic Geography needs realignment.Not decentralization.

In the USA there is a wonderful irony which comes from Trump believing he is an incredible genius so should be God emperor but at the same time has been shown to be totally incompetent and a sociopath who has no empathy for anyone outside his immediate family. So Trump has shown the Imperial Presidency needs to be eliminated and maybe the presidency reduced to a ceremonial positionAlso that the city state should be brought back and that the nation state has failed?The nation state is a very recent invention and and almost destroyed the entire world with total warIf the USA did not have the almighty dollar which bigger idiots accept it would just be another Venezuela. or is this another manifestation of the farcical nature of nation states?

Professor Ragan was, formerly, the head of the Indian Central Bank. He should have emphasized that central banks have the power to take on the debt created by central governments programs to deal with pandemics which local governments do not. Of course, the central government can always finance the efforts of state and local governments (which is currently under consideration in the US Congress

Ultracrepidarian 'public intellectuals' can come to any 'consensus' they like but they are wholly irrelevant. Consider the fate of the Indian public intellectuals (luckily Rajan wasn't one) who signed on to 'activist' Yogendra Yadav's' 7 point plan to tackle the pandemic. Too late they realized that they had committed themselves to the expropriation of all private property! Now they are practicing 'intellectual distancing' from ultracrepidarian academics who blithely witter on about subjects they know nothing about.

The reason both Economists and many Epidemiologists have looked foolish is because of 'Knightian Uncertainty'- in plain terms, this means the people building the models don't know what they are talking about. They pretend there is an underlying probability distribution which will quickly become apparent. The truth is that superior results come from competing idiographic 'structural causal models'. Mimetic effects yield rapid, relatively efficient, solutions. Going back to the drawing board yields nothing buy stupidity and concurrency deadlock.

What we have seen is not that 'heads of Government' matter but that 'Institutional Memory' at a much lower level of decision making is what determines outcomes. The fact is, 'centralization' and 'decentralization' are hysteresis driven and idiographic. They aren't frictionless, memory-less, menu options- as one might pretend in a classroom teaching eighteen year olds.

Obviously, pandemics- like everything else- do involve 'trade-offs' and this is is an idiographic matter. This militates for 'Tiebout sorting'- nothing more. But, that already obtains purely because 'public goods' are actually 'club goods' and incentive compatibility requires local mechanisms with a degree of 'manorial rents'.

Rajan mentions India- which he knows something about. Health is a State, not a concurrent, subject under the Indian constitution. Furthermore, only the State, not the Central Civil Service, is empowered to deal with problems such as those posed by migrants. It is foolish to pretend that the Center's response could have been very different. In a country where the Center could, at best, spend 200 dollars extra on those whose livelihoods are at risk, it is obvious that sooner or later, only those who can afford to isolate will be able to do so. The gamble is- as a witty Indian epidemiologist put it- that this foreign Virus will find the Indian climate so demoralizing and inhospitable that it will lose the will to live faster than it can kill.

In the short run, any Government can create compliance through a sort of shock and awe effect. Older people will remember President Nixon's 90 day wage and price freeze. The 'Nixon shock' did affect expectations temporarily. But then people realized that a Democracy can't actually jail a whole bunch of Teamsters and CEOs. After all, America couldn't even jail any sizable number of Draft Dodgers.

Governments only have as much power as citizens give them. Academics have no say in this. They may feel this is because 'charismatic leaders' are misusing their sex-appeal to seduce the masses. The solution is not far to seek. Public intellectuals must take off their lab coats and don fishnet stockings and stilleto heels. They should take the hairpins out of their tightly coiled hair bun and let their glistening blonde locks tumble over their heaving bosoms. I'm not saying it worked for me- but Rajan is a few years younger than me and weighs at least 20 kg less.

On the other hand, if you believe 'authoritarian' populists are running amok- then, for God's sake, don't start talking as if changing the Constitution is a quick fix. Why? The guys who will get to change the Constitution are the guys you consider evil. Thus, for the nonce, you must pretend that nothing much can change because hysteresis rules, Theoretical Econ is just an armchair activity of an essentially peurile type.

Isn’t there much flatulence in this long-winded (oh that wind again) comment? Surely, there is a simpler way to make your point. If all you wanted to do is demonstrate your knowledge of “Knightian uncertainty” and claim that economic and epidemiological models both fall prey to it and so decision rules are hard to formulate on any scale just come out and say it plainly. We shouldn’t have to carry a handaxe to cut our way through the thick foliage of your prose.

Ignoring this man's ad hominem remarks, my response, if anyone is interested, is - Decision rules under Knightian Uncertainty (which obtains where co-evolved phenomena are involved even in an Arrow-Debreu universe) should display a certain type of 'Hannan Consistency' which we loosely speak of as 'regret minimization'. I omitted mention of this technical aspect of the literature. Instead I say this is an idiographic matter best accommodated by the theory of Tiebout sorting- i.e. Governors of different States trying different solutions based on local constraints and endowments. Maybe Florida's superior Disaster preparedness meant that De Santis made the right call because he was able to real-time monitor Care homes &c. Maybe not. We will see. Neither Rajan nor I are Medical Doctors. We don't know the correct 'Structural Causal Model'. But, as Economists, we do know- or ought to- about Mechanism Design & Social Choice. To 'constitutionally' decentralize powers is always a worse alternative than to do so 'discretionally'. As even Aristotle knew, Economia is always better than Akrebia.

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After all the pros and cons it would seem that the biggest challenge for lawmakers is to thoroughly think through the consequences of their decisions and how they affect their various constituents. It's the thinking through part they are failing. Again and again, hopelessly.

Although I tend to always believe “a coordinated middle ground may work best” I think the way the pandemic has unfolded has demonstrated the superiority of localized and decentralized decision making.

Consider the ineffective and incompetent leadership of Trump - San Fransisco and Washington State were extremely quick in responding to this pandemic - faster than NYC. The USA might have been more ruined if more power was consolidated in government hands.

Also consider the European Union and the breakdown of the Schengen zone. A lot of countries re-imposed border checks - as a result, Germany and other central and Eastern European countries were able to mitigate a lot of the damage Italy, Spain, and France incurred.

Consider also Asia; China (as a centralized state) has at no point demonstrated that it actually had this pandemic under control - contrast that with Hong Kong and Taiwan who were able to control this epidemic better precisely because they are freer from state control.

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Mass protests over racial injustice, the COVID-19 pandemic, and a sharp economic downturn have plunged the United States into its deepest crisis in decades. Will the public embrace radical, systemic reforms, or will the specter of civil disorder provoke a conservative backlash?

For democratic countries like the United States, the COVID-19 crisis has opened up four possible political and socioeconomic trajectories. But only one path forward leads to a destination that most people would want to reach.

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